Russia looks to spur Yamal LNG with tax breaks

At a meeting with global energy giants, Prime Minister Putin extended an invitation to help develop one of the world’s richest hydrocarbon regions on Russia’s Yamal peninsula, adding tax breaks to the enticement.

In the far north Russia, Yamal’s gas reserves total 12 trillion cubic meters – an estimated 70% of all Russian gas.

Shell, Eni, Total, E-on and other energy giants came to Salekhard, a city built on the permafrost, to discuss their participation in developing Russia’s colossal Arctic gas deposits. Russian Prime Minister added to the invitation, by holding out the prospect of tax breaks.

“During the past years to stimulate and develop new oil and gas provinces we have been temporarily freeing companies from paying the mineral extraction tax. In the end it is profitable for the budget – it creates new projects and new jobs and increases demand in adjacent fields. I think it is possible to create a privileged tax regime for the investments to pay off, which are used to develop new gas fields, including here in Yamal.”

To make investors life easier Russia pledges to develop infrastructure in the peninsula. It will be vitally important in a region where infrastructure is not only critical, but requires engineering expertise.

The longest in the world bridge constructed on permafrost was built in record speed – in less than a year. It has enabled the connection of Bovanenkovo –and one of Russia’s largest gas deposits – to the rest of the world, but it was the most difficult feat in Gapzrom’s attempts to open up the area.

Business leaders from the global firms were upbeat about both the technology they could bring to projects, the scale of the proposals and the possibility of tax breaks.

Yamal’s largest field – Bovanenkovo – will start delivering gas in three years. Foreign investors believe by that time the market will stabilise and demand will be on the rise.

At the moment Russia produces 22% of the world’s gas. Its share in LNG now is about 2% – but the goal is 20%, and this is where foreign investors are also expected to help.